COMPANY NEWS

COMPANY NEWS; Starbucks to Taste New York, at Last

By HARRIET KING,

Published: October 7, 1993

SEATTLE, Oct. 6—
The Starbucks Corporation, the nation's largest retailer of specialty coffee, is expected to announce on Thursday that it is moving farther from its base here into several new Eastern markets -- including New York City and Boston.

The company, which has aggressively expanded, now has 253 stores in the United States. It features Italian-style coffee bars selling fresh-roasted beans, pots to brew them in, and drinks like latte (pronounced LAH-tay), a shot of espresso topped with hot milk but less foamy than cappuccino.

Specialty coffee is the only part of the $6.5 billion coffee industry that is booming. This has helped Starbucks become one of the nation's 40 fastest-growing companies, according to Fortune magazine rankings.

Since 1990, the company has pushed out of Seattle and down the West Coast to California, and east to Colorado and Chicago. The expansion is financed in part by $110 million it has raised in stock offerings since it went public 15 months ago.

Starbucks first ventured onto the East Coast in March, when it entered the Washington, D.C., area. It quickly spread there and nearby, with a Du Pont Circle store now one of its highest-volume outlets nationwide. The company plans to open 12 more in Washington by Christmas, and 260 nationwide in the next two years.

Until now, Starbucks has skirted the New York area, except for outlets in Nordstrom department stores in New Jersey and Barnes & Noble superstores. In the meantime, others have created Seattle-style coffee bars in Manhattan in recent months.

"Maybe we didn't have the courage to enter New York because the labor market is different and land costs are high," says Howard Schultz, the chairman and president, who is from Brooklyn and is the guiding force behind Starbucks.

When he joined the company in 1982 to direct its marketing, Starbucks, founded in 1971, had four stores selling only coffee beans in Seattle. Mr. Schultz visited Milan on a buying trip and became entranced with the coffee bars -- so much so that he and other investors bought Starbucks for $4 million in 1987, with the intention of introducing the concept in Seattle.

Analysts estimate that Starbucks sales will reach $157 million for the fiscal year that ended on Sept. 30, up 69 percent from $93 million in 1992. Sales in 1991 totaled $57.7 million.

The company's stock has steadily risen since a close of $10.25 on June 26, 1992, the date of its initial offering. In Nasdaq trading today, the shares closed at $26, down 25 cents.

Christopher Vroom of Alex. Brown & Sons, a co-manager of its stock offering, said he expects net income for the recent fiscal year to soar by 95 percent, to $8 million. Sales are about $725 a square foot, with the typical store having 1,500 square feet.

"I think the company can generate revenues in excess of $1 billion by the end of the decade," Mr. Vroom said. "There are only a handful of retailers in any business with the potential to grow 10 times their current size."

Each week, Starbucks serves a million coffee drinkers, who pay $1 to $2.50 for an espresso, latte, cappuccino or mocha. They also pay an average of $8 a pound for 30 types of beans from 20 countries and regions, including Colombia, Kenya, Guatemala, Java, Celebes and Kona.

Roughly 4 percent of company sales comes from direct mail, a fast-growing area, and 9 percent from sales in the coffee bars it runs in Nordstrom stores nationwide.

While precise numbers are not easy to gather, analysts say Starbucks is definitely the market leader in the $1.5 billion specialty-coffee business, which encompasses both the coffee bars and sales of premium-grade and price coffee in stores.

One of the company's strengths is the high level of customer service. Matthew Patsky, a vice president of Robertson, Stephens & Company in San Francisco, said Mr. Schultz had given all 4,000 full- and part-time workers full medical and dental benefits, as well as stock options.

"He is empowering his employees, making them partners, and this results in a customer service level that is high," Mr. Patsky said. "This is driving the success of Starbucks."

While generous benefits may seem costly, Mr. Schultz says his employee turnover is significantly lower than that at other retail coffee stores.

He decentralizes management for each region the company enters, but nonetheless keeps tight control. All stores are company-owned. He turns down 1,000 calls from would-be franchise operators each month.

Starbucks roasts its own beans, and Mr. Schultz's office overlooks a roasting and packaging plant. It rarely uses coffee brokers.

Finding different varieties of beans has afforded him varied travel opportunities. He recently toured Guatemala by helicopter to inspect remote mountain plantations, some on the flanks of volcanoes. A similar trip is planned soon to Ethiopia and Kenya.

Photo: Howard Schultz, chairman and president of the Starbucks Corporation, the nation's largest retailer of specialty coffee, talking in the Seattle roasting plant with Brad Anderson, a roaster-crew trainee. (Doug Wilson for The New York Times)